Here are three things to get prepared for home ownership.
1. PREPARE YOUR CREDIT – Mortgage lenders typically require at least 24 months of good credit history in order for you to qualify for a mortgage. It’s normally a good idea to have a few credit cards, a few installment loans and a 24-month history of making rent payments on time.
2. PREPARE YOUR CASH FLOW – Mortgage lenders typically require less than a 45% debt-to-income ratio in order to qualify for a mortgage. This means that your total monthly debt payments (including the new mortgage payment) should be no more than 45% of your monthly income.
3. PREPARE YOUR SAVINGS – Mortgage lenders typically require you to have a certain amount of savings in reserve in order to qualify for a mortgage. Your savings should be in your account for at least three months in order to qualify, and any large deposits will need to be explained and documented. The amount of the required savings will vary based on the loan program that you choose. However, a good goal is to save enough for a 3%-5% down payment, plus 1-3 months of mortgage payment reserves. For example, if your new mortgage payments will be $3,000 per month, you should probably aim to save approx. $9,000 plus the amount of your down payment.
Of course, each loan program has its own guidelines that may be different than what I’ve outlined above. That’s why it’s important to speak to a professional who could help you consider your options and evaluate your specific scenario.
Home prices and values are up, but so are loan limits
Here are two ways to benefit from the 2022 loan limit increase.
Home loans that conform to the Fannie Mae and Freddie Mac guidelines tend to have better terms than non-conforming loans. That’s why it’s good news that the Federal Housing Finance Agency (FHFA) the conforming loan limits have increased to $647,200 for 2022. This is a $98,950 increase from the loan limits of 2021. In some higher-cost areas such as Boulder County, the loan limit has increased up to $747,500.There has also been increases with loan limits for FHA loans which provides more options for home financing.
1. BUY A HOME – It may make sense for you to consider a new home purchase using the higher loan amounts. This may be the perfect time for you to lock in a long-term interest rate because many economists believe that interest rates could go up over the coming year.
2. REFINANCE – It may be worth it to consider a home loan refinance if:You currently have a home loan that is near the loan limit. You’d like to make some home improvements. You’d like to consolidate other debts into your home loan (such as home equity loans or credit cards). You’re paying mortgage insurance and your home has increased in value from the time when you purchased the home. You anticipate a change in your cash flow situation in the coming months (college funding, retirement, elder-care, etc.).